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Faulty workplace investigations can lead to hefty damages

The recent decision of the Alberta Court of Appeal in Elgert v. Home Hardware Stores Limited addresses two issues of importance to employers, including charity and non-profit employers, when engaging in workplace investigations. The case highlights the importance of conducting proper investigations in the context of a summary dismissal of an employee, and the potential dangers employers face if they do not conduct thorough, objective and fair investigations. The case also addresses the circumstances in which courts will award moral damages, or “the damages formerly known as Wallace,” as well as the different approaches courts have taken to this changing aspect of employment law.

In Elgert, Mr. Elgert was responsible for supervising a number of employees, including the boss’s daughter (Ms. Bernier). Unfortunately, complaints were made about the boss’ daughter’s performance. Not wanting to exacerbate the situation, Elgert relocated her within the workplace. There was evidence from co-workers that Bernier was very unhappy with the transfer, and that she would “get even” with him. She then apparently went to her father and reported that Elgert had made an unwanted advance towards her several months earlier. At the same time, one of Bernier’s friends and co-workers spread the word to other colleagues that Elgert had made similar advances toward her.

The company retained a friend of the Bernier family that worked at Home Hardware’s head office to conduct an investigation. Unfortunately, this individual had little, if any, experience conducting investigations. There was evidence Bernier’s father was inappropriately involved in the conduct of the investigation. Furthermore, the evidence was clear the investigation was poorly conducted and Elgert did not have a reasonable opportunity to respond to the allegations or defend himself. At the conclusion, the investigator met with Elgert, suspended him and informed him he had been accused of sexual harassment. However, he did not provide any details to him.

Subsequently, Home Hardware asked to meet with Elgert in order to discuss the allegations. Elgert indicated he wanted counsel to be present, but Home Hardware refused his request. As a result, Elgert did not attend the meeting and his lawyer wrote to Home Hardware and denied the allegations. Within a week, Home Hardware terminated his employment for cause.

The matter was tried before a jury. Perhaps not surprisingly, the jury concluded the investigation was not performed in a fair or appropriate manner, and there was no just cause for dismissal. In addition to 24 months' pay in lieu of notice, the jury awarded Elgert $200,000 for aggravated damages (the damages formerly known as Wallace), and another $300,000 in punitive damages. Not surprisingly, the matter was appealed.

Wallace damages used to be awarded when a court found that an employer had acted in bad faith in the course of dismissal. Once the bad faith had been established, the court would extend the applicable notice period. In Keays v. Honda Canada Inc., the Supreme Court of Canada adopted a different approach, holding an employee would have to prove actual damages flowing from the employer’s bad faith, and that any damages awarded should be compensatory.

In Elgert, the trial decision confirmed Elgert had not committed any misconduct, and that his dismissal was a result of a shoddy investigation. The Court of Appeal, however, noted that while Elgert had led evidence he had been extremely upset by the manner in which he was dismissed, there was insufficient evidence to support the award of $200,000 in aggravated or moral damages. Furthermore, while the Court of Appeal agreed Home Hardware’s conduct was deserving of an award of punitive damages, the court scaled the award back from $300,000 to $35,000. This is more in line with historical awards in the context of employment law cases; $75,000 is still at or near the high water mark.

While awards of moral damages have been made on a somewhat inconsistent basis, the case law seems to be crystallizing the fact that the courts will require some evidence of actual damages or loss before they will award “the damages formerly known as Wallace”. Merely proving bad faith on the part of the employer will not lead to such an award without additional evidence.

That said, employers expose themselves to liability for numerous types of damages when they dismiss an employee based on shoddy investigations. It is important that any investigation of workplace complaints be conducted in a fair and impartial manner, and that employees be given an opportunity to respond fully to any allegations against them. Organizations are well advised to develop a policy covering workplace investigations so as to ensure that proper procedures are followed in every case. The advice of legal counsel is also advisable in these circumstances.

Compare jurisdictions: Employment: Canada

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